President Trump seeks to slash $3.6 trillion of government spending in budget

WASHINGTON, May 23 (Reuters) - U.S. President Donald Trump wants lawmakers to slash $3.6 trillion in government spending over the next decade, taking aim in his first budget plan at healthcare and food assistance programs for the poor while boosting the military.

The Trump administration on Tuesday will ask Republicans who control the U.S. Congress - and the federal purse strings - for the politically sensitive cuts.

The proposal in its current form is unlikely to be approved by lawmakers as they craft their own tax and spending plans but the document makes Trump's budget priorities clear and lays down a marker with Congress.

Trump seeks to balance the budget by the end of the decade, according to a preview given to reporters on Monday. There is some new spending in his plan for fiscal year 2018, which starts in October.

The Pentagon would get a spending hike, and there would be a $1.6 billion down payment to begin building a wall along the border with Mexico, which was a central promise of Trump's presidential campaign.

Trump's proposal foresees selling half of the U.S. emergency oil stockpile, created in 1975 after the Arab oil embargo caused fears of price spikes. The announcement surprised oil markets, and briefly pulled down U.S. crude prices.

The biggest savings would come from cuts to the Medicaid healthcare program for the poor made as part of a Republican healthcare bill passed by the House of Representatives.

Trump, who is traveling overseas this week, wants lawmakers to cut more than $800 billion from Medicaid and more than $192 billion from food stamps.

Republicans are under pressure to deliver on promised tax cuts, the cornerstone of the Trump administration's pro-business economic agenda, which would cut the business tax rate to 15 percent from 35 percent, and reduce the number of personal tax brackets.

But their policy agenda has stalled as the White House grapples with the political fallout from Trump's firing of former FBI Director James Comey whose agency is probing alleged Russian meddling in the 2016 U.S. election.

Republican leaders in the House said lawmakers would be able to find common ground with the budget plan.

"At least we now have common objectives: grow the economy, balance the budget. So at least we are now on that common ground, and we will have a great debate about the details about how to achieve those goals," U.S. House Speaker Paul Ryan told reporters.

STOCKS HIGHER

U.S. stocks were slightly higher on Tuesday as investors parsed details of the plan.

"The budget will not pass in its current state, but people will keep an eye on any sort of indication of corporate tax reform as well as infrastructure spending," said Nadia Lovell, U.S. Equity Strategist at J.P. Morgan Private Bank in New York.

"This is a sea change in terms of how we would look at taking care of the most vulnerable in our country. And frankly it is really going to have a big impact on the parts of my state that were the biggest supporters for Donald Trump," she said.

The budget foresees an increase in military spending. Trump is seeking a $52 billion hike, which is almost 10 percent higher than current budget caps but only three percent more than what former President Barack Obama had sought in his long-term budget plan.

The Republican president has vowed to build up the armed forces, as the United States faces challenges from adversaries like Islamic State, Iran and China.

Trump upheld his promise - for the most part - that he would not cut Medicare and Social Security, two social insurance programs that deficit hawks have long targeted for reforms.

Those so-called entitlement programs may not come out of Capitol Hill unscathed, however. House Majority Leader Kevin McCarthy, a fellow Republican, said lawmakers would have to reform both programs to save them.

"We have to look at the entitlements if we believe that we want them to be there for future generations," he told CNBC.

The healthcare bill passed by the House aims to gut the Obama administration's signature 2010 Affordable Care Act, known as Obamacare, that expanded insurance coverage and the government-run Medicaid program. But it faces an uncertain future in the Senate, which is writing its own law.

The White House proposed changes that would require more childless people receiving help from the Supplemental Nutrition Assistance Program, better known as food stamps, to work.

The budget plan would slash supports for farmers and impose user fees for meat inspection. Another politically fraught item is a proposal for cuts to the U.S. Postal Service, a goal that has long eluded lawmakers and administrations from both political parties.

Most government departments would see steep cuts, particularly the State Department and the Environmental Protection Agency.

The plan drew immediate fire from lobby groups, including from the Committee for a Responsible Federal Budget, which said it relied on "rosy assumptions," gimmicks and unrealistic cuts.

"While we appreciate the administration's focus on reducing the debt, when using more realistic assumptions, the president's budget does not add up," Maya MacGuineas, the group's president, said in a statement.

Trump's plan relies on forecasts for economic growth of 3 percent a year by the end of his first term - well beyond Congressional Budget Office assumptions of 1.9 percent growth.